HB 771 
.R35 
Copy 1 



THE PROBLEM 

OF = 

HARD TIMES 

Price, Fifteen Cents 




THE DISTRIBUTION LEAGUE 

21 Union Trust Building 
Indianapolis, Ind. 



Science of Value. No. 6. 

THE PROBLEM STATED 

OF 

DISTRIBUTION 

SECOND EDITION— REVISED AND ENLARGED 

by 

HENRY RAWIE 



" It is the fool who saith in his heart there is no God. But what 
shall we call the man who tells us that with this sort of a world 
God bids us be content ? — Henry George. 



Copyright secured by HENRY RAWIE. 1909 



THE DISTRIBUTION LEAGUE 

Indianapolis, Indiana 

21 Union Trust Building 

1909 



LiSHARY of CONGRESS 
Twy CoDies Seceived 

MAR 20 "i^O^ 

cuss O-^ ^>^c. No. 









^ Tke Problem Stated. 

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1^ 



The problem of the distribution of wealth is entangled 
by so many other problems arising from the complexity of 
trade and from the movements of money that the chief 
difficulty has been to find the problem itself, to separate 
it from the intricate maze of facts and to set it out 
clearly so the reader may see what the writer is trying to 
solve. Is there one single problem at the foundation 
which will also solve the great number of other problems 
that arise in every detail of society and in each of the cur- 
rents of civilized life? 

Is the failure of the mass of the people to acquire pro- 
portionate shares in the rapidly increasing wealth the one 
fundamental problem, which will bring about equality 
in all directions? When each man, by his own efforts, 
may acquire his share of wealth, will he thereby also 
acquire social standing, freedom and independence, and 
the self respect which seems natural to a civilized man? 
Must a man, on the contrary, acquire character, social 
standing and freedom first, in hunger and poverty, before 
he may be allowed his share in wealth? 

At the very outset we are hampered by a vague and 
uncertain meaning as to what is commonly meant by shar- 
ing in wealth. We find wealth in two great divisions, 
which are quite distinct and which consist first of a great 
quantity and variety of consumable goods necessary to 
support life and which must be widely distributed. 



4 THE PROBLEM STATED. 

The very nature of this primary wealth, the ease with 
which it may decay and is lost, the necessity for its rapid 
production and consumption, prevents any considerable 
part of wealth being made up from this class. 

The second great division, however, is capable of almost 
indefinite expansion and consists of the value of all natural 
resources of forests, farms, mines, rivers and lakes, sites 
for cities and towns, beside the multitude of improvements 
of every kind in buildings, factories, ships, railways and 
other forms of fixed property. 

In the first, or primary division of consumable goods we 
can each have but a relatively small share at any time 
and we are required to quickly restore the part consumed. 
If, for example, the value of goods consumed in one year 
at retail prices equal fifteen billion dollars and wages equal 
fifty million dollars a day, the share for each person is less 
than one dollar per day. It should be clear that however 
we may expand this primary wealth and however great 
the stores we may accumulate, we cannot expect to have 
more than a few days' supply on hand at any one time. 

But in the second division of fixed property, we do 
not have a fluctuating supply, but have a spring of wealth 
with almost incredible power of increase. 

It is very important to clearly distinguish between these 
two classes of wealth. It should be clear at a glance that 
the problem of sharing in wealth has two important parts ; 
in order to live we must each have at least a minimum 
share of food and shelter, but, if we are to enjoy liberty, 
to have security, to achieve social standing and develop 
self respect, we must also secure our share in the more per- 
manent and much greater volume of fixed property. 



THE PROBLEM STATED. 

MONEY AND WEALTH. 

We find our problem entangled by another complica- 
tion, for may we not have our wealth in money or in credit 
payable in money on demand. Aside from the fact that 
money is onh^ valuable because it may at any time be 
exchanged for a certain portion of any kind of prop- 
erty, the relation between money and property is of 
the very greatest importance in distributing wealth among 
the people. 

So important is the money question, Proudhon declared, 
that if anyone could always obtain the value of his property 
in money, and the value of his labor in money on demand, 
all other problems of civilization would be solved by nat- 
ural regulation. So great was his faith in the money ques- 
tion that he believed if all forms of labor or property could 
be made exchangeable for money on demand, equality 
would be so readily attained that government by Force 
would soon be replaced with government by Public Opinion. 
This proposition of Proudhon became the basis of Anar- 
chism. 

What we call prosperous seasons are periods of rising 
prices for goods; periods when property and labor readily 
exchanges for money. And conversely, what we call hard 
times are adverse periods when it is difficult or impossible 
to exchange labor or the value of property for money. It 
may follow that in this variation of the ease or difficulty 
with which we sell labor or property for money, the real 
problem may be hiding. 

Having a given volume of money, subject to no serious 
expansion or contraction, there are nevertheless periods 
of great variation ; times when money is obtained freely on 
demand and other times when it is difficult or impossible to 
get the value of labor or property in money. 



6 THE PROBLEM STATED. 

This difference in exchange is plainly the result of the 
difference in value of money during rising or during falling 
prices. 

Prices are the names which money gives to different 
quantities of value and, while money is stationary in value 
other values alone are subject to change and the difficulties 
of exchanging property for money appear on the surface 
of trade. When prices are increasing and the value of 
money is stationary, the money must be exchanged for 
property, which is advancing in price or the owner of money 
fails to get a share of the increase. On the other hand, if 
prices are falling, the owner of property must exchange it 
for money which does not change, in order to avoid a loss. 

This law of circulation is quite clear when considering 
money as a measure of value only, but v/hen we add the 
more important function that money alone can accumulate 
and secure the gains from rising prices, the inducement 
to exchange property for money or to refuse to do so, is 
even more powerful. 

If, for example, A owns one thousand dollars in money 
and merely holds his money during a rise in prices, his 
money has lost purchase power. In order to escape this 
loss, A must exchange his money for some property, which 
he may sell for more money and then again exchange this 
money for something else that will sell for a higher price; 
and for this reason men become eager to buy and sell for 
money. 

But these are merely spasmodic movements depending 
upon a rising market, the speculation of which forces a 
reaction and the adverse condition obtains control ; is there 
no natural movement that would cause a continuous desire 
to exchange money for labor and property? 



THE PROBLEM STATED. 7 

There is fortunately a natural condition wherein men 
would be eager to buy and sell for money, although prices 
were stationary or if they declined, within certain limits. 
The natural condition of trade where buyers would ever 
be eager to exchange money for labor and goods is found 
when the product can always be sold for more money than 
it cost. This situation would not require a shifting of 
buyers from one commodity to another depending upon a 
rise in price, but is the natural result of always having 
more money in circulation with which to buy goods than is 
required to be paid to produce them. 

Notwithstanding this important function of money, 
there is no mistake more general than that men of wealth 
command great sums of money and that such men may 
bring about periods of rising or of falling prices. 

Money is a time-saving device and, like any other tool, 
it must be in constant use in order to have value, and it 
is only useful when in circulation. Money cannot be 
monopolized or controlled because it has no inherent or 
intrinsic value and is only valuable because it has employed 
labor at some desirable work for a definite time, and repre- 
sents a cash credit which labor must redeem on demand. 

The condition which governs the value of money is also 
the condition that governs the circulation of money because 
a dollar when once spent must be newly earned and newly 
endowed with value before it may again be spent unless it 
is used merely as a measure to determine the value of exist- 
ing property. It is this necessity of earning its value by 
labor, working during a fixed time that prevents money 
from accumulating as wealth and keeps it divided and dis- 
tributed in small units among millions of people. 

Altho we may not be allowed to accumulate money 
without danger of loss we may accumulate what is nearly as 



8 THE PROBLEM STATED. 

good; we may have credits, payable in money on demand. 
Thus, while laws of value may put straws in the way of 
hoarding money, we may accumulate credits calling for 
five or more times the money in existence and the frantic 
efforts of men to meet these calls for money will force a 
temporary corner in money and produce a panic. The 
problem will now become a little more distinct by bringing 
in credit and by demonstrating that prices also depend 
upon credit as well as upon money, for it is self evident 
that what a man buys on credit creates as an effective a 
demand as what a man buys for cash. 

But this credit buying will appear to' be spasmodic 
because every credit presupposes an equal debt which must 
be paid, and for every expansion of prices on account of 
credit, there must be a corresponding contraction of prices 
to pay debts. Such, however, is not a true statement of the 
case because it omits the vast accumulation of credits in 
stores of goods and in fixed property whose price is always 
depending upon a volume of secondary, or credit money in 
circulation. 

CREDITS. 

To get a clear understanding of credits, it is necessary 
to understand the relation between the two great classes of 
wealth and the two great classes of currenc3^ In order 
to carry forward our modern system of business where each 
man is working independently and buys what he consumes, 
we need a great' store of goods on hand to meet the enor- 
mous demands from tens of millions of consumers. Cash 
money is restricted by natural law to circulate in the pro- 
duction and distribution of primary goods because when 
once spent for goods, it must be newly earned before it may 
again be spent. 



THE PROBLEM STATED. 9 

But the truth must be carefully noted that prices of 
improvements, of fixed and income bearing property, are 
not determined by the volume of cash in circulation, but 
are determined, on the contrary, by a volume of credit 
money quite as exacting in its requirements as cash. No 
doubt, this may be a surprising statement as it is contrary 
to all theories of finance, but because this truth was not dis- 
covered, Proudhon failed in his scheme of free banking and 
all schemes of expanding the currency are doomed in 
advance to fail. 

It is a well known fact that a very large per cent of all 
business is done upon credit and it is remarkable that the 
significance of this fact should so long have escaped obser- 
vation. 

It may appear that when a man has been required to 
produce the cash to pay for a house and lot, the volume of 
money determines the value or price of such property but 
such is not the case. 

A man cannot buy property unless he has accumulated 
a credit in some form by which he secures the temporary 
use of cash to make the exchange and, in such case, money 
is purely a measure of value, and the value of the property 
itself is determined by the volume of credit available with 
which to buy it. 

The chief function of money in the modern business 
world does not go beyond the first great class of wealth. 

The volume of consumable goods on hand is generally 
very much less than the volume of fixed and income prop- 
erty, which may be ten times as great as the value of goods. 
It becomes a very important question then, if the price of 
goods is determined on one hand by the volume of cash in 
circulation and the price of income property on the other 
hand depends upon the volume of credit payable in cash. 



10 THE PROBLEM STATED. 

This important truth is easily demonstrated 
because the volume of money in circulation is limited to 
the sums paid out in wages and to the wages spent for 
goods at retail prices. If we pay fifty miUion dollars a day 
in wages, we have but fifty millions to circulate, but cannot 
spend this money so quickly as to have the same money 
to pay the same wages the next day. 

For this reason the payment of wages requires a cer- 
tain volume of money that will enable us to pay for example 
fifty millions each day for as many days as may be necessary 
before the amount required for each succeeding day is re- 
leased by being spent. When this volume of money has 
been reached, the circle closes and a store of goods has 
developed to equal the value of money, and there is no 
method by which this volume of money may be increased 
which will not at the same time increase prices and absorb 
more money. 

If we should attempt to expand primary money by 
allowing merchants and property owners to secure new 
money with which to conduct business, to buy other prop- 
erty or to pay debts, we would at once encounter a law of 
value that limited primary money to primary circulation, 
and the greater volume of money would only increase 
primary prices, leaving secondary property where it was 
before the expansion. 

A merchant, for example, takes a supply of money, five 
thousand dollars, with which he builds a store building and 
then calls upon .his credit for another sum of five thousand 
dollars with which he buys a stock of goods. The money 
used in building and in buying goods is used for primary 
purposes, is paid out to labor and distributed, retaining the 
same value and performing a like service in other directions. 



THE PROBLEM STATED. 11 

But a residue of wealth remains, which cost ten thous- 
and dollars and consists of a building and a stock of goods, 
an increase of wealth without an increase of cash. The 
reason this building and stock of goods must have its value 
fixed by secondary or credit money, is because it has never 
been completely paid for and represents a credit belong- 
ing to the merchant, which has been advanced to him out 
of the surplus not required to maintain life. 

There is also another, and equally important, reason 
why the value of this property cannot be sustained by the 
volume of cash in circulation; it must prove to be a true 
credit, to be worth more than it cost by being able to sus- 
tain itself from its own profits. 

It is on account of this law which limits primary money 
to primary prices and secondary money to secondary prices 
that we secure equality in wealth and prevent a building 
being valuable that has no other excuse for existence than 
the eccentricity of the owner. 

UNEQUAL DISTRIBUTION. 

Bearing in mind the wide general truth that property 
divides into two great classes of primary and secondary 
and that currency divides into two classes of primary and 
secondary, we may advance another step in clearing the 
way for our problem. 

In a general survey of the wealth of the world, we find 
find it consisting of a great volume of primary goods 
limited to present needs and a great volume of property 
accumulated from the past which is more or less intimately 
connected with the volume of goods. It seems quite nat- 
ural that the volume of primary property, being limited 
to temporary needs, should have its prices fixed by a lim- 
ited volume of primary money. But when we consider 



12 THE PROBLEM STATED. 

the immensely greater volume of property upon which the 
labor of past generations has been spent, we are in the habit 
of regarding this property as having had its value piled 
up and accumulated from workmen no longer living. The 
laws of nature prevent such a heritage of value from past to 
present generations, for if there was a credit to some fortu- 
nate ones descending from the past, there would be an 
equal debt for other unfortunates. 

Property is an advantage to the owner whether inherited 
or otherwise abtained, but the advantage to the owner 
must be limited to some benefit the living workers derive 
from the property. This law operates to prevent past per- 
formance from being inherited as a debt by present work- 
ers and does so prevent by limiting the value of all property 
to the circulation of primary and secondary money of the 
present time. 

It is falsely assumed that present owners of property 
enjoy wealth which their ancestors were diligent in saving 
and accumulating, and who were of exceptional benefit to 
past generations.^' Such an assumption is true in a limited 
sense only and the law of heredity applies to social as well 
as individual inheritance and what we each get from the 
past, we get without cost as a necessary qualification to 
prepare us for the increasing demands made upon us by 
h'gher development. 

Beside this general statement of the case according to 
a general law, there are many particular instances in modern 
life where fortunes that overshadow any past wealth have 
been secured in a few years by present owners under pre- 
vailing systems of distribution. If wealth is now distrib- 
uted so unequally with our boasted gain of intelligence, it 
may be confidently affirmed that a system equally as bad 



THE PROBLEM STATED. 13 

has promoted the historic inequality of wealth which has 
cursed the world since the dawn of civiUzation. 

We are required by laws of progress to discard all we 
get from the past that is not vital to the present as so 
much dead wood that is outgrown. We secure much 
property from the past that is now without price, and the 
cost to former generations is merged into the profit and 
loss account of civiUzation. If it is true that we have no 
concern with the labor of the past in considering the present 
distribution of wealth, we must infer that there should be 
rapid changes in distribution, not only in primar}^ property, 
but in the income property as well. 

The total wealth of the United States may be roughly 
estimated at one hundred billion dollars in value, one-half 
of which is value of land. The total wages paid in one 
year may also be roughly estimated at fifteen billion dollars, 
giving a low average of about five hundred dollars a year 
for each worker. If the value of land is omitted, which is 
not a part of the circulation paying wages, we find the total 
wealth produced by labor is only equal to the wages of labor 
for four years. At this rate, with proper laws to protect 
the small investments of the people, the entire wealth, 
land omitted, may easily change owners once every ten 
years. 

If the ground work so far laid out presents the true 
situation, the next step leads to the explanation of the 
interference with business that prevents a proper distri- 
bution of wealth. 

In order to bring the problem from deep obscurity into 
the half Ught, it was necessary to demonstrate two great 
divisions in wealth, and to account for prices, it was neces- 
sary to prove two corresponding divisions in the circulat- 
ing medium. Another step in advance now proves that 



14 THE PROBLEM STATED. 

workers divide into two similar great classes of primary 
and secondary. The primary workers are the ones engaged 
in the production of food and shelter for all the people, 
which is the primary wealth. The secondary workers are 
the classes of builders, servants, merchants, clerks and pro- 
fessionals in many occupations. 

For the purpose of clearness in illustration, it will be 
assumed that the total value of the product and total 
wages divides into two equal parts. Primary laborers, 
altho more numerous, are paid less, but are paid half the 
total wage and the fewer secondary laborers being paid 
more, get half the wage fund. One-half of the laborers 
produce all the primary wealth consumed by all classes and 
which must be distributed to each to enable him to live. 

In the United States, generally speaking, this primary 
product is distributed among all the people with substantial 
equality. Altho we have a class of wealthy people and a 
large class of very poor people, yet the rich get no inordi- 
nate share of primary products and few among the poor 
suffer from actual want in normal times. On the other 
hand, the disparity in secondary wealth is amazing in its 
brutal injustice. In this class, not only is one-half the 
wealth taken away from labor as it is being created, but 
the entire property of past labor is rapidly going, not alone 
from the working classes, but from the merchant and pro- 
fessional classes as well, and the share of wealth heretofore 
owned by a large middle class is fast disappearing and is 
carrying the middle class away with it. It should be clear 
at a glance that distribution is having its unequal effect 
almost wholly upon the most desirable income property of 
the country, leaving the least desirable in the hands of the 
shattered middle class. 



THE PROBLEM STATED. 15 

The extent to which this inequality may be carried is 
also easily explained because as long as the mass of the 
people may have primary wealth distributed to them, so 
they may live from day to day, the secondary wealth they 
create may all be taken away. Thus during all recorded 
history the common people upon whom the burdens of 
civilization fell, and whose strong arms carried the human 
race forward, have been robbed and despoiled by sharing in 
the pottage, while a few only had a share in the feast. It 
is also clearly evident how, in modern times, wealth becomes 
so much more rapidly unequal, while the portion of the 
mass is also much more abundant. 

The introduction of machinery greatly increased the 
quantity of primary stores and at the same time set free a 
much larger share of the population to create secondary 
wealth for the spoilers. 

For some time, therefore, wealth may concentrate in 
rapid and swollen streams to a few families, and there will 
be a positive increase in comfort among the millions of 
workers. 

It is only by direct and absolute chattel slavery that we 
can imagine a distribution so diabolical in its injustice from 
which the mass of mankind receive only food and shelter 
while a few may take the much greater and more important 
product, the product upon which the higher development 
of the soul of man depends. A system of direct chattel 
slavery, however, would have limitations to the increase in 
wealth which have been overcome in the modern S3^stem by 
allowing the greatest freedom among men to strive, to 
excel, to invent and discover, but nevertheless it takes from 
most of them all but a bare existence as slavery would do. 

What then, is the nature of the system whereby the 
mass have such freedom to work hard, to produce great 



16 THE PROBLEM STATED. 

wealth, to do so much for the progress of the world but yet 
are held so firmly between fixed lines of want as to be utterly 
unable to share in the higher freedom and independence 
that fixed wealth will alone secure? Workmen of to-day 
are free as Roman athletes and gladiators were free; they 
are free to acquire knowledge, skill and endurance; free to 
strive, to excel and compete with others of their class and 
gain a small prize for success, but must be content with the 
social position, with the association, and with the portion 
of slaves. 

The modern system may be partially explained and 
accounted for if the slave or working class is given freedom 
of working, of receiving and exchanging primary money 
alone and, in some mysterious way, are cut off from all the 
benefits arising from secondary money. According to such 
a system the laborers would receive wages determined by 
demand and supply limited exclusively to primary wealth. 
Prices would necessarily include all moneys required for 
taxes for incomes and interest, while all the gains in wealth, 
all the accumulations would, by a similar law of demand and 
supply, be apportioned among the class who were struggling 
to control the secondary money. Or again this unequal 
system could arise if one class who controlled the property 
and was able also to control the price, and v/ith half the 
price would pay the laborers enough to enable them to live 
and with the other half could take all the surplus wealth 
for themselves. 

■ NATURAL INEQUALITY. 

Before the more difficult problem may be fully explained 
there remains a knot to unravel which otherwise would 
confuse the student. There is a necessary inequality of 
wealth in operation all the time as one of the primary 



THE PROBLEM STATED. 17 

inducements to urge men to win success against the resis- 
tance of Nature. This inequality being natural, is also 
temporary and in the end is beneficial; it is essential that 
one generation shall leave some gain in progress as an 
inheritance to the suceeding generation and also to encour- 
age the development of higher types of civilized man. 

Knowing in advance of this necessary inequality of 
wealth, excuses are easily made for the extension of this 
natural difference to unnatural and slavish limits. 

This failure to distribute wealth increases as we become 
more and more efficient, and have more of the benefits of 
accumulated knowledge, discovery and invention from 
which large gains arise. This surplus wealth may be said 
to be regarded by nature as a pure bonus contributed from 
her store house and it is lavishly distributed to deserving 
workers but without much regard to individual merit and 
almost wholly for purposes of advertising. 

As an example of such bonus, a man invents or puts to 
use a machine or process whereby the labor of one man is 
able to furnish a supply that is sought by a thousand men 
for which they freely pay one-tenth their wages. In this 
instance, there will arise a temporary inequality of one 
hundred to one, the wages of one man exchanging for the 
wages of one hundred men. In considering such an exam- 
ple it is usually claimed by writers on this subject that free 
competition will correct this difference and speedily reduce 
the price of the article to about the wages of one man. 

Even more than this is claimed by Adam Smith and 
Mill who hold that any price above the cost of production 
is an unnatural price and freedom of competition must 
continually tend to reduce all prices to costs of production 
which they call the Natural Value. That Adam Smith and 



18 THE PROBLEM STATED. 

Mill were completely in error on this important point may 
easily be demonstrated by a reduction to absurdity. 

If it were true that the natural value was the cost of 
production to which all prices under free competition tend, 
then it would be true that all advance above the very 
lowest strata of society would have been impossible, and 
wealth other than daily food for daily wants could not come 
into existence. 

When society divides into two equal classes of workers, 
one-half producing food and shelter for all the people and 
the other half producing secondary wealth for all the people, 
it becomes absolutely necessary that the primary product 
shall sell for at least twice its cost of production, if all the 
people are to be fed and clothed. But, if each of the work- 
ers is to get a share in the secondary product as well as a 
share in the primary, then the secondary wealth must also 
sell for at least twice its cost of production and wages must 
equal four times the actual cost of subsistance at the pre- 
vailing standard of living. 

If primar}^ wealth, selling at a high price, will cause a 
rush of labor to increase the supph^ and abandon factories, 
railways and the like, it would prove that civilization moves 
backward instead of forwards. This error, that natural 
value is determined by the cost of production, arose from 
an error that labor was a commodity having a cost price 
determined by another error called a capitalist who em- 
ployed and paid him. 

Consider the former example of one man who produces 
to such an advantage that he supplies one thousand men 
with a necessary article, taking one-tenth their wages in 
return. This produces a natural difference in wages of one 
hundred to one, yet it is a difference that arises out of a 
general benefit. The buyers get the same product at less 



THE PROBLEM STATED. 19 

price than before and the money that before was being 
scattered among more laborers is now concentrated to one. 
But the one man who gains must necessarily spend 
his gain and must thereby increase the total demand 
which will be strengthened by the savings of one thousand 
men who buy cheaper from him. How, therefore, in this 
case, with demand increased and strengthened on every 
side, can there be free laborers without work rushing to 
compete and to reduce prices to costs of production? 

The manufacturer getting the extra profit uses it in 
constructing a building which could not have arisen with 
the same profit widely scattered among many men. When 
the building has been completed the distribution of this 
new wealth will begin which will again increase demand and 
will be independent of the profits made in manufacturing. 
The value of a newly created building is a credit value 
considered by laws of nature as a pure gift to the owner and 
he is expected to make this credit good by creating a build- 
ing that will be useful to others. If the building is useful 
and serviceable, it will have a value more or less than it cost, 
which may become the basis for an increase in credit 
money. 

It is not true that prices tend to return to the costs of 
production but on the contrary, all prices tend inevitably 
to advance to higher levels on account of machinery cheap- 
ening the costs and at the same time increasing wages. If 
a time comes in the future when all costs of production 
are eliminated by automatic machinery and wages are paid 
for personal services rendered each other, the natural limit 
of products and the limit in wages will continue to establish 
natural prices according to the law now prevailing and with 
little regard ^to" cost. 



20 THE PROBLEM STATED. 

There is another deep error concerning savings which is 
called "a reward for abstinence" that should be uprooted. 
Nature must indeed have been considered a fool when 
economists claimed that all gains in wealth and all profits 
were the results of savings and that capital was a reward for 
abstinence. To glance only at the most obtrusive facts is 
to see the utter foolishness of believing that Nature was so 
short of sight as ever to depend upon so uncertain a factor 
as the savings or abstinence of workingmen. 

Profits arise in enormous quantities from the necessary 
operations of society and from the growth and circulation 
of credit. Under the growth of wealth, and of civilization 
there must reside some power to spur men to invent, to 
produce, to discover and to create; there must be a force 
of great vitality that may offer and pay rewards for success. 
Without such force the growth of civilization is inconceiv- 
able and moreover such force must increase with the growth 
and must support it and this force can be no other than the 
increase in value that increases prices by which alone civili- 
zation is sustained. 

The advance in civilization requires a gross profit of, 
at least, one hundred per cent on each trade in primary 
wealth as a fundamental and necessary condition before 
food can be distributed to all classes of laborers. 

If a farmer, for example, must sell his grain at its cost of 
production, his laborers can onty buy a scant living and 
he can buy but little more. In order that a farmer may 
pay wages above a mere living and have a surplus with 
which to build and improve and pay wages to secondary 
laborers so they may buy a living, he must be able to sell 
his grain for not less than twice its cost of production. 

Out of this tremendous supply of profits, a supply of 
capital is furnished which is limited only by our ability to 



THE PROBLEM STATED. 21 

put it to use and we may secure capitalists more easily 
than skilled workmen are secured. 

No more mistaken doctrine was ever promulgated, none 
has produced more suffering and wrong than the theory of 
Adam Smith, supported by subsequent writers, that all 
commodity prices, under freedom of competition, tended 
inevitably to return to the cost of production. 

Every department store, for example, has a great 
variety of prices based wholly upon different classes of cus- 
tomers. In the basement will be found one strata of prices 
for a corresponding strata of buyers, who cannot bu}^ at all 
unless they do so upon the most narrow of margins. As 
the customer ascends from the basement, he finds every 
shade of price suitable to ever}' walk in life that may attract 
money from fat as well as from lean purses. So true is this 
fact about prices that trade has developed more than fif- 
teen varieties of eggs based upon no difference in cost but 
apportioned by the ingenuity of the trader to extract the 
last possible penny from each buyer according to the social 
eminence he imagines he holds by the strings of his purse. 

Taking a wider view of prices we find the greatest dis- 
parity between prices and costs of production. No two 
farmers produce at the same cost and get to market at the 
same expense and the same difference is found in every 
enterprise in the civilized world. Notwithstanding these 
remarkable differences in cost, each and every product is 
benefited by a price above cost when the market is reached 
and this increased price is a result of credit. 

In noticing the difference between costs and market 
price, the economic writers concluded that this level of price 
came from the cost price of the most expensive product, 
which high cost established a basis and lower costs must 
thereby gain the difference. This was getting the cart 



22 THE PROBLEM STATED. 

before the horse. When the market once establishes a 
profitable price level, the activity of money seeking gain 
will move to more and more expensive fields until the price 
limit is reached. 

There is no "must sell" at any level of prices, which 
fact is well known from disastrous experience; there are 
times when not enough commodities may be secured to 
supply demand at a very profitable price and other times 
when the supply cannot be sold at the costs of production. 

There are always two prices to every product or prop- 
erty in the m-arket. One price is the cost price; the other 
is the selling price, and the difference between them gives 
rise to all exchange and to all the functions of money. 
As this difference increases, activity in the circulation of 
money increases so as to distribute the gains, and as 
this difference diminishes, activity diminishes and society 
tends toward barbarism. 

We do not have servants of various kinds because we 
have rich men to given them work, but, on the contrary, 
we have rich men because we have set free servants who 
earn more than a living requires and who spend the money 
from which riches spring. 

The less units of labor we need to sustain life, the more 
units of labor are set free for higher services. In addition 
to this increasing sum of wages for different classes of 
workers, there 'is another fund that may be used to raise 
prices high above the cost of production. This fund is the 
credit fund based upon the value of all secondary wealth. 

In the example of a manufacturer who sells to one 
thousand customers at a profit of one hundred to one, the 
gain is not a prime inequality because the thousand cus- 
tomers do not contribute ninety -nine wage units for one, 
but the machine displaced labor to off-set this difference. 



THE PROBLEM STATED. 23 

In this example two lines are open whereby this excessive 
profit may be distributed to many more people. If the 
machine displaces thirty laborers and they are employed 
by the increased purchase power that the lower price en- 
abled the thousand buyers to save, the wage fund will 
remain normal and the purchase power will be increased 
for one thousand men by the new product of thirty men 
while the profit may continue to roll up a surplus of one 
hundred to one each day. But if the saving in price was 
not spent by the one thousand customers for labor, then 
the thirty men set free by the machine must compete and 
reduce the wages of the thousand by the amount they saved 
on the price. So far the exceptional profit to the owner, 
equal to the wages of ninety -nine men, has not been taken 
into the circulation, and if the other gains are taking place 
and this profit is spent for labor, the demand will be in- 
creased by ninety-nine wage units without increasing the 
number of laborers. 

If the manufacturer spends his profits in constructing a 
building, the money paid each day for labor and material 
is doing primary duty and when the building has been com- 
pleted the primary duty of money will also have been com- 
pleted. The house stands as a complete gain or bonus and 
the labor and material used in constructing it must be con- 
sidered as having been completely consumed as if the same 
labor and material has been devoted to food and clothing. 
The completed building, so far as society as a whole is con- 
cerned, has cost nothing; the profits of the manufacturer 
were pure gains and the building operation was the same 
as any other operation where no residue of fixed property 
remained. 

Consider another typical case of unequal distribution 
being in a class by itself. 



24 THE PROBLEM STATED. 

In a rapidly growing city like Chicago with its manifold 
advantages in production and commerce, large profits will 
necessarily develop in many directions. A merchant com- 
ing early in the history of the city will select a location 
suitable to his business as as near as may be to the center of 
trade. A growing city provides the same kind of multiplied 
gains as arise from new machines, new inventions and dis- 
coveries. There are ways without number in a city, by 
which time may be saved and where a given amount of labor 
will produce a greater result than elsewhere. As a basis for 
profits the city contains a very large number of secondary 
and highly paid laborers who produce no primary wealth 
but who create a great market at high prices. The mer- 
chant who has a central location will be in command of a 
very great and profitable trade and each year the city will 
attract a new population equal to a moderate city and the 
merchant will be limited in his sales only by the speed with 
which he may secure his supply. There is nothing in this 
business to indicate especial ability or genius when a mer- 
chant accumulates great wealth but there is everything to 
indicate the favors which shower upon him on account of 
the growth and development of the city. 

This inequality is one that should also be temporary and 
should be open to the competition of other merchants who 
would share in this exceptional profit. 

Two ways to correct this unequal wealth are open if 
the outside merchant may also cater to this trade ; one is to 
divide the profit and the other would be to cheapen the 
goods to the consumer. The self interest of the merchant 
is always at work to maintain his trade and increase it and 
for this reason the temporary gain in wealth has no evil 
effect. 



THE PROBLEM STATED. 25 

In the competition, however, operating from the out- 
side to engage in the same business, there is a great and 
fundamental difference between the position of the mer- 
chant on one hand and the manufacturer on the other. 

COUNTERFEIT CAPITAL. 

The manufacturer who depends upon a newly invented 
machine cannot prevent other men from using like machines 
or if it is protected by a patent, the time is short and a bet- 
ter machine or an improvement may supercede it. But, 
for illustration, let it be supposed the manufacturer has a 
machine which cannot be duplicated and saves the labor 
of ninety men each day and suppose that above all costs 
the wages of ninety men equal to $150.00 a day is gained 
as net profit. In such case the machine would have what 
is called a capitalized value ; it would produce a net return 
$150.00 each day for all future time. The capitaUzed value 
in this case would be $150.00 for one day multipHed by the 
days of twenty years in the future, about six thousand times 
one day's profit or nine hundred thousand dollars. If the 
machine is sold to a corporation, the owner gets nine hun- 
dred thousand dollars in a lum.p sum which pays the profits 
of twenty future years and the company buying from him 
collects the profit from labor each day. Manifestly some 
one in this illustration pays twice for the same thing and 
labor, compelled to furnish goods for the nine hundred 
thousand dollars, gets absolutely nothing in return. 

This situation could not possibly arise unless counter- 
feit money in some way made its appearance with which 
to collect nine hundred thousand dollars from labor and 
yet fails to add anything to his wages. 

A man may issue counterfeit money which passes cur- 
rent and when such money buys equally with other money 



26 THE PROBLEM STATED. 

it may seem that no harm is being done. Yet the harm is 
so great that no expense is spared by civiHzed governments 
to break up counterfeiting and to imprison false coiners. 
But we have a system of counterfeiting in daily use 
more disastrous and debasing than any counterfeiting ever 
broken up by governments. 

There is in constant circulation; under the guise of 
capitalized value, a volume of counterfeit money four or 
five times as great as the volume of good money, but since 
it does not take anything from any one but laborers, there 
is no profound reason for stopping it because the men who 
get the benefit are the leaders of society and compose its 
great and powerful classes. 

To get nine hundred thousand dollars as a present price 
for future profits, stock certificates would be printed and 
sold and such stock becomes an issue of counterfeit money 
which is redeemed in the market where said stock finds its 
cash buyers. This system will float a volume of counter- 
feit that will only be limited by the cash taken from labor 
to keep it redeemed and as only a small share is expected 
to be sold each day, a small volume of good money will 
keep in circulation a very large volume of counterfeit 
payable in good money. 

If primary money should be counterfeited in large vol- 
ume the increase in prices of all kinds would distribute the 
loss so it would be borne by all the property owners equally 
with the laborers. : fe! 

But the mvich more ingenious scheme of a counterfeit 
secondary money which leaves the primary measure,^of 
value unimpaired saddles all the loss upon laborers by fur- 
nishing a counterfeit money with which they are paid for 
all the secondary property they produce but which they do 



THE PROBLEM STATED. 27 

not get in their hands because the wages of labor and prices 
of products are held within fixed lines by primary money. 

This counterfeit money increases and sustains prices 
like other money but it is the price of counterfeit capital 
v/hich is so sustained by money taken from wages of 
labor and from profits on goods. Of course, there is no 
machinery or improvement created by labor which labor 
cannot dupHcate, and hence the illustration of the capital- 
ized value of a machine is begging the question. 

In the example of the merchant, however, another mer- 
chant who wishes to share in the one hundred dollars a day 
finds the profit depends upon a certain space which 
commands the location and here is something that cannot 
be duplicated and will, therefore, be capitalized as illus- 
trated, with the machine. To acquire a location giving 
exceptional profit, be it a corner in a city, a mine or other 
land, the present owner must be displaced and there is no 
way now open except to buy him out at his own price. 
Thus the merchant who depends like the manufacturer, 
upon his sales, finds he has a machine giving him a net 
profit of one hundred dollars or more each day, which can- 
not be dupHcated and which he may sell at its capitalized 
value of six thousand times one day's net profit or six hun- 
dred thousand dollars. When a lot in a city sells 
for such price, the future profits from twenty years' busi- 
ness is paid in spot cash and the buyer continues to collect 
the daily profit as before and the labor which makes the 
money valuable pays twice, and can be made to pay twice, 
because the six hundred thousand dollars of land value 
gives rise to an equal volume of counterfeit money. 

When a lot is sold for six hundred thousand dollars not 
only has there been such an amount of wealth taken 
unequally which would have been otherwise distributed to 



28 THE PROBLEM STAETD. 

labor, but improvements for twenty years have been fore- 
stalled by this tremendous cash price. The buyer cannot 
now devote a net bonus of one hundred dollars per day 
to future improvement, but must devote it to pay interest 
upon counterfeit capital which otherwise would be value- 
less. Unless there are other gains by increases in popula- 
tion, new discoveries and new inventions, this issue of 
counterfeit capital will at once throttle all enterprise and 
establish a system of debasing and inhuman slavery. 

To clearly understand what this farestalling of future 
distribution means, it is necessary to understand that 
merchant and manufacturer depend upon identically the 
same sources for profits, namely, the sale of goods to custo-' 
mers at profitable prices. In one case, future distribution 
cannot be forestalled because, altho the profits are large, 
they are limited to each day's service while in the other case, 
they are estimated for twenty years of the future and are 
sold as so much valuable land. 

All locations, for whatever purpose, are owned by some 
one who is either getting all the gain created by labor as 
a natural inequality in wealth, or else the owner is prevent- 
ing someone from using the land to get the same gain. If 
only the present, and not the future, gain was in question, 
it would soon be remedied by the very great profits, being 
used to employ labor to build and improve and thus increase 
wages and prices and scatter the advantage broadcast. 
But when millions and millions of such accumulations 
would employ labor, they find they must pay a very high 
price for land, a price which equals the advantage they 
hope to reap. 

An investor or business man must pay a given price 
for land equal to twenty years of the excess profit, but is free 
to do business with this handicap. A man must wait 



THE PROBLEM STATED. 29 

twenty years for a return of the price paid for land but may 
make the ordinary narrow profit on his building and busi- 
ness meanwhile, being upon the same plane and being cut 
off, as laborers are cut off, from sharing in the surplus. 
But, if other gains arise during the twenty years, he in turn 
can capitaUze the increase and have a profit in the higher 
price of his land. 

SECONDARY DISTRIBUTION. 

The distribution of food to all laborers requires a price 
high enough to permit a profit of one hundred per cent; 
food must sell at twice its cost so that two men may obtain 
the money with which to buy what only one man produces. 
The same proposition is true of all secondary property, of 
all improvements, of all building, factories, railways and the 
like. If the mass of laborers is to get the money from dis- 
tribution to buy secondary wealth, the property must sell 
for twice its cost for when it sells for cost, the sums so paid 
will not include money to buy the finished product, but only 
money for the labor and material that has been consumed 
in building. 

The money with which to pay twice the cost of second- 
ary property is furnished even more profusely and abun- 
dantly than primary money. The circulation of secondary 
money depends likewise on a price of twice the cost 
.of production and such prices would enable laborers to 
get wages with which to buy buildings as easily as they now 
buy food. That a sufficient volume of secondary money is 
maintained in circulation is self-evident because when 
land and improvements are considered as one property, 
they are equal twice the cost of the improvements alone. 

When private property in land, however, made a separ- 
ation in this natural price, it also divided the secondary 



30 THE PROBLEM STATED. 

money in circulation into two parts, good credit money and 
fraudulent credit mone\^ 

To be able to see the full significance of this proposition, 
it is necessary to consider the result as if land could be had 
without price and as if the entire demand was limited to 
labor products alone. In such case the volume of second- 
ary money would not need to be increased because the 
sums now paying for land and improvement together would 
then pay an equal price for the improvement alone. With 
improvements selHng for twice the cost of production and 
selling for no more than land and buildings now cost, the 
whole effect of the change in demand would be to increase 
wages from an increased circulation based upon the higher 
price of improvements instead of the higher price for land. 

This is a very important difference, because in such 
case the higher price of improvements would continually 
sustain and enlarge the market, whereas when buildings 
sell for cost, the sum in circulation will only pay for primary 
demands, and the money spent for land creates a volume 
of counterfeit outside the earnings of labor and outside of 
general business. 

Counterfeit money based upon the value of land is 
redeemed by the cash received as rent which is included in 
the price of food and shelter, and by the cash paid for land, 
and by the cash loaned with land as security. 

When a land owner sells his land for a sum equal to one 
day's rent multiplied for twenty future years, he not only 
makes a temporary inequality in wealth permanent, but 
he doubles the inequalit}^ by getting present payment for 
twenty years of future profits and he can do this only by 
getting so much wealth for nothing and by fastening 
inequality of wealth upon the coming generation. If the 
future profits could not be capitalized into land value, the 



THE PROBLEM STATED. ' 31 

correction of distribution would be very speedily and easily 
made, and the profits now taken from a rise in value of land 
would then be taken from a rise in value of improvements. 

Nature admits temporary inequality in wealth and 
countenances the payment to one man of the wages of one 
hundred men any day, but refuses to countenance the 
possibility of paying in the same unequal way for twenty 
future years, and violent^ opposes capitalizing these future 
expectations into cash. By this S3^stem from every three 
dollars labor earns, two dollars are taken to redeem counter- 
feit money and only one dollar is he permitted to spend 
for himself. 

Land value is based upon the utterly erroneous and 
absurd proposition that there may be such a thing as a 
cash value for future expectations. 

It is claimed that when a man sells land, he may spend 
the money for building and thus return it to circulation 
but the money so exchanged merely measured the value of 
land, and when the land was sold, a credit was taken from 
one circle of exchange into another entirely different circle 
and this credit has been changed into a counterfeit. 

There is a double process at work when credit is used to 
get money with which to build, the primary work of con- 
structing a building is exhausting credit and is distributing 
it back to labor from which it was received. But when the 
same credit calls upon money to buy land, it is exhausted 
as effectually as though it was spent for a building and the 
building had been deliberately destroyed by fire. 

Writers are unanimous in agreeing that prices depend 
upon the volume of money that can be maintained in 
circulation and the failure to explain the problem of 
distribution is found in the failure to appreciate the circu- 



32 THE PROBLEM STATED. 

lation of credit or secondary money and its influence on 
prices. 

There are three great divisions in distribution; primary 
wealth, secondary wealth, and the value of land, whereas 
there should be but two such divisions. And there are 
three corresponding divisions of money by which prices in 
each division are governed, whereas there should be but 
two kinds of money. Primary money or cash circulates 
in primary markets and, in doing so, creates secondary money 
out of the profits realized when prices are higher than 
costs of production. 

The fixed limit in the volume of money requires its 
constant circulation because the value must be renewed 
daily which allows each individual worker to acquire a 
share. The limit in the volume of cash fixes a correspond- 
ing limit in the volume of secondary money because it must 
be redeemed in cash. For this reason the owner of income 
property of any given value will find his property is not by 
itself sufficient to give him credit and enable him to borrow 
money. The volume of secondary money is limited like 
the volume of primary money, and is based upon deposits 
of value created and earned by labor, which accumulate 
from prices of goods. The store of value from which 
secondary money draws its supply and which limits its 
volume consists of deposits in banks payable on demand in 
cash. Value cannot come into existence unless it makes 
its first appearance as a value of money and only so much 
value can remain in existence as may be exchanged for 
money on demand or on limited time. 

Deposits coming to banks must come as so much cash 
or as being payable in cash on demand and, therefore, such 
deposits create a supply of value pure and simple which ^ 

will not attach to anything but money. If bankers held 



THE PROBLEM STATED. 33 

depositors' money for them as mere sums of money instead 
of sums of value created from money, all advance in civili- 
zation would be limited to primary development. Bankers 
learn from experience that depositors will not require their 
deposits in any one day, and each day's requirement of cash 
will average about ten per cent of the cash liabilities of the 
bank. The profit in banking requires that nine of the ten 
dollars of deposits on hand not called for each day may be 
loaned and bank deposits create and maintain a volume of 
checks or secondary money in circulation that may be 
four or five times greater than the cash in circulation, but 
every dollar of this expanded secondary money must be 
redeemed by banks with cash on demand. 

The volume of secondary money is subject to the same 
law of circulation as the volume of primary money and 
must be used to consume labor products in building and 
improving as cash must be used to consume primary 
products in living. If this law v/as not interfered with by 
counterfeit money, then a volum.e of secondary money 
would be distributed among the mass of the people in higher 
wages and they would share in secondary wealth with the 
same equality they share in prim.ary wealth. 

Primary money will refuse to circulate unless primary 
prices are at least twice the cost of production so that the 
owner of money will be eager to exchange money for labor 
or goods. Secondar}' money restricted by the same law 
will not circulate unless the selling price of secondary prop- 
erty is at least twice the cost of production. 

EQUAL DISTRIBUTION. 

When the selling price of goods is twice the cost price, 
the growth of profits will be very rapid and will be widely 
distributed and banks will have a very rapid accumulation 



34 THE PROBLEM STATED. 

of deposits. These deposits in turn will supply an increas- 
ing number of checks and drafts which will further increase 
the volume of money and prices. This demand for goods 
will grow until it meets the entire supply of goods at profit- 
able prices, and demand will then seek to increase the 
supply; new houses will be in demand, higher rents will be 
paid, new factories, new office buildings, new hotels, rail- 
roads and all manner of secondary development will be 
undertaken, based upon high prices of goods which is con- 
stantly expanding the volume of credit money. 

If land which cost nothing could be had, as it should be 
had, without price, this secondary fund would begin imme- 
diately to bid up the prices of the existing secondary prop- 
erty, not only to the level of higher prices of labor and 
material, but also to the level where the same difference 
between cost price and selling price would give the same 
profits in secondary, as well as in primary, markets. In 
such event, there would be the same consumption of second- 
ary money in labor and material used in building as there 
is in spending primary mone}^ and there would be the 
same renewal of the sums spent and the same increase in 
profits, and the higher selling price of secondary property 
above cost would cause a great volume of secondary money 
to circulate. 

The fact must not be overlooked that altho production 
may deal with only one circle of exchange, distribution 
deals with the continuation of one such circle after another. 
The market, therefore, is not interested in a spasmodic 
and short period of good times, but in a system where the 
cause of the first circle of activity shall be required to 
return, to maintain, to widen and to increase the succeeding 
circles of activity. 



THE PROBLEM STATED. 35 

When the accumulating profits seek to bid up prices of 
improvements on land, they are met by the demands of 
land-owners, and the bidding up of such prices becomes at 
once the bidding up of prices for land and the return of 
money spent for land is prevented and secondary wealth 
must continue to sell at the cost of production, while land 
gains the higher price. This failure to bid secondary prop- 
erty above its cost of production erects a stone wall against 
all increase in wages above primary demands and prevents 
all increase in profits above primary development by tak- 
ing up all surplus in higher prices for land. 

Bidding up prices for land instead of prices of improve- 
ments comes to an end w^hen all the free capital in banks 
has been spent for land and is changed into irredeemable 
loans and good credit has been changed into counterfeit 
credit. The failure of secondary property to advance 
stops all secondary progress in building and improving. 
The secondary workers cannot get an increase in wages 
because their product is stationary in price and they can 
no longer pay the high primary prices which in turn must 
then decline and force many thousands out of work. 

Property in land acts like a rat trap which tempts and 
forces the gains of industry into a trap from which they 
are only released to be loaned as counterfeit money. 
Land value draining the market of large sums of m.oney 
.continually causes the entire volume of money to pass into 
the rat trap, from which it is released as a loan to borrowers 
who then have no other way to get money. The entire 
volume of money once in the trap is released as a loan so it 
may again seek the trap where it is caged and loaned a 
second time. On being released the second time, it cannot 
possibly escape and is again corralled to be loaned the third 
time. Each of these loans requires the borrower to have a 



36 THE PROBLEM STATED. 

credit, either in stores of goods or in property of some kind, 
and as the loans are being made, the credit of the borrower 
is being used up. 

There is a Umit to the number of times every dollar 
in circulation may be loaned and when this limit is reached, 
there is a very sudden and serious check to business. When 
credit has been exhausted and banks are loaned "full up," 
the business of the country nearest the margin of profit 
cannot continue; the volume must contract and prices fall 
to a basis where new credit may not be required for the 
time. 

If the reader will follow the daily routine of banking, 
he will learn that in prosperous seasons when prices are 
rising and when many men are making money, the banker 
will have more money coming in every day than he is 
called upon to pay out. When this excess is received from 
the sale of land in any form, it cannot return unless it is 
loaned by the banker and it is so loaned continually. The 
result of this continually loaning excess receipts over expen- 
ditures means that the entire sum of money in circulation 
passes over the bank counter many times. 

There is a limit to the number of times each dollar may 
be loaned and this limit is reached by the banker who loans 
the spare dollar every time he gets his hands on it and only 
fails to loan when the spare dollar fails to return to the bank. 

Suppose the entire sum of money that may be used by 
banks is equal to the sum of two billion dollars out of a 
total circulation of three billion dollars. We assume all this 
money is out among the people, and the profits made in bus- 
iness in one year will cause this money to pass in and out 
of the banks many times and will leave with the banks a 
new sum called a deposit which we estimate at two billion 
dollars each year. This deposit is a debt which the banks 



THE PROBLEM STATED. 37 

owe to their customers; they will be required, therefore, 
to keep a sum of money on hand to meet the demands of 
customers and for this purpose a sum of cash equal, at least, 
to ten per cent of deposits must be retained as a cash 
reserve. After a year of business when deposits have 
grown from nothing to two billion dollars, the cash reserve 
must grow from nothing to two hundred million dollars, 
contracting the banking capital to that extent. But this 
contraction of money would not be apparent because the 
customers of the banks could then use the two billion dol- 
lars of credit as secondary money and they would issue 
checks in place of money and thus expand the currency. 
The second year we may estimate deposits to increase two 
billions more requiring a further contraction in cash outside 
of two hundred million dollars. The third year the process 
continues; deposits grew to six billions, reserves grow to 
six hundred millions and in the fourth and fifth years, 
deposits continue to eight and then to ten billions and 
reserves grow from eight hundred million to a billion dollars. 

When this point is reached, one-half the banking capital 
on the outside has been wound up inside the bank as reserve, 
and the scarcity of money coming into the bank will prevent 
any further increase in deposits. 

The situation which will then confront the people at the 
end of five years of the "most stupendous prosperity the 
world has ever witnessed," will be a panic with years of 
hard times following. Starting with money abundant and 
with most efficient banking facilities, business was making 
a net gain in wealth over and above demands for daily 
consumption of two billion dollars each year, after five years 
of making money, the country is prostrated because the 
prosperity process for some reason cannot be allowed to 
go on. 



38 THE PROBLEM STATED. 

At the end of five years the situation has changed from 
a free field wherein all enterprises were daily making money 
to a field where most enterprises are daily losing money; 
credit has been exhausted, no more loans may be made and 
the circulation of money has been severely restricted. Not 
only has the business of the entire country been greatly 
reduced, but such reduction of business reduces prices and 
profits and does so at a time when bank loans reach their 
highest point and when interest charges on such loans are 
greater than the profits to be made in the narrow field then 
prevailing in the business world. 

What must happen under such circumstances is what 
has happened invariably at the end of every such season of 
prosperity; a panic occurs when wise men have agreed a 
panic could not occur, and hard times follow when there 
seems to be no excuse for hard times. 

What was taking place during the five prosperous years 
in the foregoing illustration was an increase in bank loans, 
keeping pace with the increase in deposits. This increase 
in loans was caused by an increase in value of land, the 
credit accumulating in banks furnished the money with 
which to buy land and advance its price. The money paid 
for land was merely a change of owners among depositors, 
but must now be loaned instead of being used again in the 
business from which it was taken. When this loaning pro- 
cess takes place, the credit made by the deposit in the first 
instance is used to buy land at an advance in price which 
process exhausts the credit and changes the owner of the 
money to a man who secures it for nothing from an increase 
in the price of land. The result is that the money made in 
business is made over again in real estate but in so doing 
exhausts the business credit, and in order to continue busi- 
ness, the money must be borrowed from the men who made 



THE PROBLEM STATED. 39 

it by a rise in land values. The money that has been made 
out of nothing more substantial than a rise in price of land 
amounts to the same thing as allowing so much counter- 
feit money to be issued; the owner of the money gets its 
value, but all other people lose the value. 

When bank deposits and bank loans have reached the 
upper limit, and no more loans may be made, business 
must be greatly restricted, and since such loans cannot 
be paid the banks' depositors are the real owners of all the 
security pledged to secure the loans. If the entire deposit 
could at such time be wiped out by taking the property of 
the debtors, then the billion dollars of cash reserve would 
be released and the entire process may be repeated for a 
few more prosperous years on cheap land. 

But the new start must be made at a very low level of 
prices so that rising prices will furnish profits to make new 
deposits. But this wholesale contraction of loans and 
deposits could not be made without causing something of a 
revolution and riot; and therefore business will continue 
at a greatly reduced volume and the security for loans will 
be gradually changed by passing from weak to strong own- 
ers. 

In the panic of 1893 the loan and deposit account was 
reduced about fifteen per cent or eight hundred million 
dollars in that one year, and after 1893, there was no fur- 
ther reduction but the same general level was maintained 
during the dull years until 1898. 

But there was an increase of new money being added to 
the circulation commencing in 1897 and continuing until 
thirteen hundred million dollars of new money had been 
added to circulation at the time of the panic in 1907. New 
money coming into circulation at a time when all primary 
prices were at the very lowest level had the effect of creat- 



40 THE PROBLEM STAETD. 

ing the boom in the following years, because a very general 
and considerable rise in prices produced a rapid increase 
in bank deposits of not less than seven billion dollars on 
top of former deposits and an increase in loans of seven 
billion on top of former loans and when the new credit was 
exhausted the end of prosperity was reached. 

The panic of October, 1907, is at this writing, January, 
1909, being succeeded by the historical hard times; money, 
amounting to thirteen hundred million dollars, has been 
contracted to bank reserves protecting deposits and loans 
of fifteen billion dollars and calling for interest payments of 
one billion dollars each year. The present demands for 
interest on bank loans, without other demands, would 
absorb all the net returns of business in good times and 
what will happen in the present case, time alone will tell. 

We are about to witness, however, a very remarkable 
experiment; there is going on continually an expansion of 
gold currency by the addition of new money of not less 
than one hundred and fifty million dollars each year which 
is most liable to double. 

Prices for most primary products consumed in living 
refuse to come down in spite of a contracted business and 
with many men out of work, but with a tremendous volume 
of idle money, if the money belonging to depositors is 
counted as it should be. 

History is full of demonstrations of the fact that the 
mere expansion of money may become an evil instead of a 
blessing and new floods of gold may do in the United States 
what in times past was done in Rome and Spain. When 
gold as money can no longer circulate, it has a brief life 
in increasing the magnificence of the feasts of Lucullus and 
passes away and disappears in the hands of Barbarians 



THE PROBLEM STATED. 41 

That buying and selling land is so disastrous to business 
may not be clear when only one such transaction is consid- 
ered alone. If one man buys land from another which cost 
nothing, and he cannot recover his money, he has simply 
lost to the other man. But when land has a market value, 
which is more stable than other values ; when it has no cost 
price renewable by labor after each sale; when it sells 
at times for more money than all other property combined, 
then the question of land value becomes the most important 
question in the civilized world. 

We have been able to increase in wealth and prosperity 
and have seasons of amazing development because we have 
had a vast expanse of free land giving opportunity to the 
muscle and brain of any man in the civilized world. The 
value of land advanced when improvements were made, 
but such advance absorbed twenty years of future payments 
and no further profit was possible from further improve- 
ment. 

The movement of new population over free land offered 
tremendous gains from the increase in land value and of- 
fered no gains in any other direction unless they were tem- 
porary. If a new field of invention offered an exceptional 
profit of one hundred dollars a day, it must wait upon build- 
ings and improvements and markets and work day by da)^ 
to realize such profits and must be subject to competition 
and be forced to divide with others. To secure the land, 
however, without which the profit could not be made, the 
landowner in one day may gather six thousand times as 
much profit without spending a cent as the producer could 
:gather in a day after much money had been spent in 
improvements. The result of thus getting so much gain for 
nothing makes development a secondary consideration and 
makes it depend wholly upon the question of whether or not 



42 THE PROBLEM STATED. 

it would be followed by a rise in the value of land and where 
no further rise in land value is to be expected, no further 
development will be made. 

The remarkable gains taken from free land, as much as 
six thousand times one day's gain, or two hundred times 
one month's gain or twenty times one year's gains of other 
business, allowed a succession of landowners to reap a suc- 
cession of crops, and allowed the builder of the first im- 
provements to get a large part of this gain for himself. 
Thus in railway, in mining and in manufacturing, the con- 
trol of lands offered a basis for gains which were capitalized 
b}^ stocks and bonds to secure money with which to pay for 
all labor and material leaving from one-half to two-thirds 
the selling price of railway and industrial systems as a bonus 
for the great financiers who could market the bonds. 

Each of the prosperous periods in our history have 
resulted from the rise in land value on new territory, from 
having a new population to exploit and enslave, and a new 
country to conquer and levy tribute upon. The adventur- 
ous leaders into new territory, reinforced by the financiers 
of settled countries who furnished cheap money, were not 
unlike the devastating armies of Rome under Pompey and 
Caesar. 

The Roman plan of plunder and slavery, to subdue and 
rob surrounding people and levy tribute upon them, fur- 
nished the new wealth with which new Patrician families 
invented new and expensive methods of personal magnifi- 
cence and barbarous display. During this remarkable 
age. Southern Italy became a vast garden with wonderful 
villas along the sea; a country filled with palaces and parks 
containing magnificent works of art, connected by wonder- 
ful roads and supplied with marvelous aquedticts. It was 
an age great in Art; great in achievement; great in wealth,. 



THE PROBLEM STATED. 43 

in its temples, in the circus, in the Forum, and great in 
slavery. 

As long as slave labor could find employment in build- 
ing for the commanders, and for the new rich famiHes of 
sudden growth, as long as work continued, the age was glor- 
ious in spite of an increase in slavery. Many of the slaves 
were prosperous and some were wealthy. But a time came 
when the resource of robbery and war failed, when no new 
wealth could be obtained from devastated fields and plun- 
dered cities ; when the credit of the conquerors came to an 
end, and money could no longer circulate, not alone to con- 
tinue to build, but to maintain what had been built. The 
work for slaves grew scarce, slaves became valueless and the 
cost of keeping them alive became a burden. Great estates 
began to show the need of repair. Revenues to the 
State diminished. The government of Imperial Rome 
could not circulate gold and employ slaves and could not 
get the revenue to pay its soldiers and officers and maintain 
the State. When the Roman Legions were for sale to the 
highest bidder, the weakly defended wealth attracted the 
covetous eye of the surrounding Barbarians and inspired 
them with like desires for plunder. 

So also, under the more modern system of slavery, a 
system more free and more refined, but more cruel and 
relentless, so also must come a time when no new territory 
and new people will furnish new worlds of wealth to con- 
quer and subdue. A time when the failure to exploit by a 
rise in value of land will cause such a failure in business 
that millions of slaves without palaces to build, without 
railway systems and industrial empires to construct, will 
have no work. 

A time will come when a great panic will not be followed 
by a great recovery; when the loss of revenue cannot be 



44 THE PROBLEM STATED. 

repaired by an increase in taxes. A time will come when 
the great railway and industrial systems will languish and 
fail for want of customers. A time when the millions out 
of work will remain out of work to be constantly increased 
by new millions. 

In that day the United States may keep company in 
the history of the world with Imperial Rome and hasten 
to her decline and fall. In that day a new race of Barbar- 
ians within her own borders of her own people, helpless and 
enslaved, fiesh of her flesh, can no longer be held back from 
plundering the wealth that may not be maintained and 
defended. 

Welch, West Virginia, 
January, 1909. 



.:) isa9 



LIBRARY OF CONGRESS 




The Distribution League. 



The Distribution League is organized to secure for each 
individual his proportionate share in the wealth of the 
world. 

It is proposed to secure justice in the distribution of 
wealth by abolishing all taxes except one, and maintain a 
single tax upon what is now known as the value of land. 
By this method of taxation it is expected to prevent the 
buying and selling of land and allow the money spent for 
land to buy goods and employ labor. 

When a plot of land in a city sells for one million dollars, 
it means that such a bare lot rents for forty thousand dollars 
a year and sells for a lump sum equal to the rent of twenty- 
five years of the future. When a man having sold the lot, 
spends his million dollars, he compels labor to pay cash 
for future expectation, and pay future rent with present 
wealth, while the buyer of the lot continues to collect the 
same rent from labor day by day as it is being earned. 

Labor may be made to pay this price for land only 
because a surplus is being produced over and above the 
necessities for a living, and the buyer, in getting money for 
land, gets the surplus wealth for nothing that otherwise 
would be distributed as an increased share to labor. 

For further information address The Distribution League, 
21 Union Trust Bldg., Indianapolis, Indiana. 

Send fifteen cents for a copy of "The Problem," by 
Henry Rawie. 

Send one dollar for "Distribution". Second edition, 
revised and enlarged. 200 pages. Cloth cover. 



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